Simple and easy way to report informational returns (file form 1099 misc)

Any business or employer who hires independent contractors must file federal information tax returns for any contractors who are paid more than $600 annually. The Form 1099-MISC is the Internal Revenue Service document for reporting the income to the IRS and the contractor. If the employer fails to forward 1099 misc form to the Internal revenue service, the IRS may impose a penalty for failure to report the payments. If you are an employer, you must bear the burden of failure to file the 1099 form or any other error or omission of details on the form.

In order to prevent any error from happening during your filing of form 1099 misc, it is always better for you to be prepared with the information required to file 1099 misc. Now, let’s take a look at some simple and easy ways to report informational return on 1099 misc forms.

1.       Collect business financial records prepared during the year to provide accurate information to the internal revenue service (IRS) within the time allowed. If you find it necessary, you can also hire an assistant to help you with the bookkeeping. That ways you can save yourself from giving inaccurate information and hence prevent unnecessary penalties and expenses.

2.       Prepare the 1099-MISC forms immediately after the end of the calendar year. If you have less than 250 1099 misc forms to prepare then you can file on paper. But it is always advised that you should file your taxes electronically as it is an easy, secure and quick method to file your returns, also recommended by IRS. The filing due date for 1099 misc in 2012 is Feb. 28 for paper filing, but April 2, 2012 if you are filing electronically.

3.       Review the forms for accuracy and have someone else review them. Penalties apply for errors and omissions as well as failure to file. Hence, we recommend you file form 1099 misc through an authorized e file service provider who will check/review your forms for accuracy and if you commit any error or mistake, allow you to re-file without any extra expense or penalties. One such IRS certified e file provider to file 1099 form is tax1099.com.

4.        It is very important that you file the forms before the due date set by the IRS. If you do not get the forms filed on time, then make sure you file them as soon as you can. Or you can also get the time to file your 1099 extended.

 Employer penalties depend on when the employer files the Form 1099-MISC with the IRS. If the employer completes the form within 30 days of the 1099 due date, the penalty is $30 for each information form not completed. The maximum penalty is $75,000 for a small business or $250,000 for other businesses. If the employer completes the form within 60 days of the due date but before August. 1, the penalty is $60 for each information return not completed. The maximum penalty is $200,000 for a small business or $500,000 for other businesses. If the employer delays until after Aug. 1, the penalty is $100 for each information return, up to $500,000 for small businesses or $1.5 million for other businesses.

5.        If you can show reasonable cause and not willful neglect, you may fit into an exception from 1099 penalties. The event must be beyond your control or have significant mitigating factors. If you can show that you acted in a responsible manner, you may avoid penalties. You may get a break on penalties if you filed the Form 1099s and failed to include information or included incorrect information but made corrections before Aug. 1.

What is form 1099 K and its filing requirements

Any difference between taxes paid and taxes owed gives rise to ‘tax gap’ which gives rise to difference between income that is taxable and income that is too reported.

It has been estimated that more than $400 billion taxes/year go uncollected. Previous IRS study showed that business income from small businesses accounted for 25 percent to 30 percent of the tax gap due to under reporting of taxes.

1099 forms are used by to report all the income and informational returns about businesses and their transactions. Example – A form issues 1099 misc to an independent contractor to whom it has paid $2000 for his services to the company.

To overcome the tax gap, government had decided the issue a 1099 form to all businesses small or big, goods or services who does any business or transaction of $600 or more per year.

This 1099 provision was set to begin in 2012, but it was cancelled in April 2011 after a great hue and cry was raised about the burden it placed on small businesses.

However, there is a 1099 provision that has not been revoked. The Housing Assistance Tax Act of 2008 added a provision of the Internal Revenue Code that requires companies that process credit and debit card payments, such as PayPal, to send a new type of 1099 form called 1099-K

1099-K is a form for Merchant Card and Third Party Network Payments. The IRS believes that some small companies do not report all of their credit or debit card revenues or revenues from third-party payments like PayPal. The new 1099-K will be used by the IRS to make sure small businesses will not be able to hide receipts from the IRS.

Until the enactment of the legislation requiring 1099-Ks, the IRS had been taking the word of the business owner that he was reporting all of his income because they did not have access to the credit card revenues of small companies. The only way to check if a company was cheating on its taxes was to do an audit of a particular return which can be time consuming and costly.

The IRS knows that there are hundreds of millions of dollars getting exchanged every year that go unreported. Much of these unreported transactions happen electronically.

The IRS commissioner said, "Beginning in 2012, payment processors will be required to make an annual information report to the merchant and the IRS stating the gross amount paid to the merchant during a calendar year. This will help improve voluntary tax compliance by business taxpayers and help the IRS determine whether their tax returns are correct and complete."

To trigger the reporting requirement, merchants must execute at least 200 transactions in a year that add up to at least $20,000. Payment providers will submit 1099-K forms only for sellers that meet both thresholds.

Taxpayers who have a credit card merchant account, PayPal account or similar account and otherwise meet the criteria will receive form 1099-K from their service providers at the end of the year.

The form 1099-K will report the gross amount paid to the taxpayer without any adjustments to fees, returns or sales tax.

Reconciling the 1099-Ks with the tax returns is going to be a problem. If your company receives debit and credit card payments and is above the reporting threshold, you should prepare for the 1099-K.

However, the effectiveness of 1099-K in succeeding the closing of tax gap is yet to be seen. The group that will be most affected are those who deliberately under- report and receive most or all of their income from cards or online payment portals like paypal.

The 1099-K form might discourage people from selling items on eBay and being paid through PayPal, for example, because they now will receive a 1099-K reporting the payments received.

On the other hand, there are people who vote on behalf of 1099-K saying that it is an unfair advantage to those who are not selling their goods on e-bay and not reporting taxes on their revenue.

However, 1099-K form is not without any disadvantages. It certainly holds a disadvantage of carrying with it a huge amount of paper work and thus huge costs. But if the huge amount of paper work leads to people reporting their incomes correctly, then the trouble is definitely worth it. The aim of the government should be to successfully be able to close the tax gap before they consider any tax increase for the payers.

IRS Issues Proposed Regulations on Reporting Requirement for Payment Card and Third-Party Payment Transactions

WASHINGTON — The Internal Revenue Service today issued proposed regulations under a new statute requiring that, starting with transactions in calendar year 2011, the gross amount of payment card and third-party network transactions be reported annually to participating merchants and the IRS.

The provision was enacted as part of the Housing Assistance Tax Act of 2008 and is designed to improve voluntary tax compliance by business taxpayers and help the IRS determine whether their tax returns are correct and complete.

“Time and time again, we have seen that better information reporting helps the tax system work better by ensuring that everyone pays what they owe,” said IRS Commissioner Doug Shulman. “The new law gives us an important new tool for closing the tax gap and also provides business taxpayers better documentation to compute and report their income and expenses. The IRS will work closely with stakeholder groups to ensure a smooth implementation of this new program."

These proposed regulations, posted today on IRS.gov, propose rules to implement reporting of credit card, debit card and similar transactions, as well as transactions settled through third-party payment networks, such as third-party organizations that settle online transactions. The IRS also released for comment a draft version of new Form 1099K, Merchant Card and Third-Party Payments, which will be used to make these reports.

The new law requires banks and other payment settlement entities to report payment card and third-party network transactions with their participating merchants. The IRS emphasized that individual cardholders are unaffected by this requirement, and none of the cardholder’s personal information will be shared with the IRS.

The IRS has created Form 1099K, which is similar to the existing Forms 1099 used to report interest, dividends and other payments. The first information return covering calendar year 2011 must be filed with the IRS and furnished to participating merchants in early 2012. Among other things, the proposed regulations describe who is required to file a return and which payment card and third-party network transactions are subject to the reporting requirement.

tax1099.com an IRS authorized service provider to efile form 1099 misc and other 1099 forms such as 1099 A, 1099 INT, 1099 DIV, 1099 K, etc will keep you updated with the latest information and news for your business filing. Meanwhile if you have any questions or queries you can contact the IRS office at 1-800-829-4933 or tax1099.com at 410-878-2324